Stockradar: Qantas (QAN)
What does the longer term investor do now? Should you buy or should you sell? By using four simple tried and tested criteria it will open up a new world of opportunity you though didn’t exist!
BACKGROUND:
Qantas (QAN) suffered a huge post Allco hangover exacerbated by the bear market which to the dismay of many shareholders has brought the stock from all time high to all time low in just over a year (Where’s your broker now?). These price swings can be devastating to the buy and hold investor but it is not difficult to ride these swings profitably with some simple common sense know how.
CRITERIA:
The focus of using the new Stockradar Aggressive Long Term Portfolio (ALTP) to make money over the longer term with little hassle is driven by four main influences.
1. Interest Rate cycle
2. Stock market cycle
3. Price / Volume relationship
4. Trend status and Stop Loss positioning
Nearly all forms of effective stock analysis are encompassed by these four areas. Stockradar’s contribution to Egolis “Off the Chart” is to educate and promote the idea and benefit of a simple price analysis approach and this week we highlight the aggressively managed Buy and Hold portfolio whose entry and exit decisions can and should be based on the above criteria. We make an educated assessment of the balance of these four areas and what it tells us about a stocks longer term up trend potential. Aggressive Long Term Portfolio (ALTP) is a slight misnomer as it is really only more aggressive than buy and hold which makes it smarter rather than aggressive. But then our trading portfolios themselves are very conservative as well as they are based only on weekly data to capture weekly trends and on average over the last 6 years have only traded 20 times in a year. Hardly aggressive. A shorter time frame doesn’t, as many think, speed up the pace of the profits it just means you work more for them. Working in such a long time frame we have the luxury of sitting back and thinking about these four areas objectively with the timing not really a special issue here give or take a few weeks. And that is sometimes all some investors want.
QANTAS:
I am talking about QAN today because it is a blue chip company operating in a tough and competitive market that requires a certain alignment of influences to get it moving, as they apparently are now. Let’s look at the four areas. The interest rate cycle we know is at a sweet cherry picking low and what the RBA is telling us is in fact that they are probably too low now. There will be some upward space for them to move before any hampering of the recovery occurs and the RBA again will not be in any special hurry to lift them “too high” So the interest rate story is in a very stock market friendly place right now and has been for months. Secondly the stock market cycle which has had a mammoth swing from bull to bear and back to bull again (for some stocks) and as the long term trend of the stock market is up again we have a plethora of accumulation phases below, like QAN has, who have mostly preceded new and budding trends that have entered the (up) trend stage of the stock market cycle. This stock market cycle simply moves from (up) trend to distribution at the highs, to (down) trend, to accumulation at the lows, and back to (up) trend again. Having said that we are a bottom up specialist and find that individually some stocks are still accumulating, some are trending and some may be nearing a distribution phase.
Could CBA be now ready to top out again near its old highs at $62.00 Were almost there believe it or not but our ALTP stop is in place to protect gains made this year and more if the highs were to be toppled! So stocks will be in different stages of the overall stock market cycle so it’s not necessarily an across the board decision and that is clearly shown by the third contributor where we analyse the price and volume relationship of a stock. Again like Stockradars Trend Intensity indicator we are not basing our decision on any one area but rather the best consensus rating we can get from these three areas of analysis to create a “good odds” case. Fourthly, and as is always the case, the overriding factor is the Trend and Stop Loss.
You set a stop loss to allow for the normal trending swings within a prevailing trend to occur thus it will be a reasonable distance from price but it will prevent the evaporation of profits and curtail the possibility of any big losses as occurred during 2007/08.
The philosophy is the same as the trading portfolios we have just overlaid a different objective and TradePlan to absolutely prevent the debacle for buy and holders that 2008 brought on for QAN. If we can win this simple battle we’re as good as home. Buying is easy it’s the selling that’s hard!
DECISION TIME:
QAN has just bounced off an all time low as the interest rate cycle hits a nadir as has the stock market. Now QAN and the market are climbing again under the auspices of a bullish price and volume relationship. Note the two up legs since the lows have been on expanding volume and the pullback on contracting turnover. That’s a bullish price / volume relationship. What’s your decision? The next decision you’ll have to make is when do you take profit, and why!
Our three key indicators suggest we are or have been in a rare sweet spot since March and the addition of 39 of the Top 50 stocks into the ALTP portfolio this year is our response to that. Don’t wonder, when the stars align, act!
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